Fitch Ratings takes various rating actions on JP Morgan 2005 LDP1, commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.
The downgrades are the result of Fitch's loss expectations and its prospective views regarding cash flow declines and commercial real estate market values. Fitch forecasts potential losses of 3.3% for this transaction, should market conditions not recover. Today's rating actions are based on the full losses of 3.3% as a majority of loans mature in the next five years. The bonds with Negative Outlooks indicate classes that may be downgraded in the future.
To determine potential defaults for each loan, Fitch assumed cash flow would decline by 10% from year-end 2008. That is consistent with the analysis used in its review of recent vintage transactions whereby cash flow was assumed to decline 15% from year-end 2007 projected over a three year period. If the stressed cash flow would cause the loan to fall below 0.95 times (x) debt service coverage ratio (DSCR), Fitch assumed the loan would default during the term. To determine losses, Fitch used the above stressed cash flow and applied a market cap rate by property type, ranging between 7.5% and 9.5%, to derive a value. If the loan balance at default is less than Fitch's derived value, the loan would realize that amount of loss. These loss estimates were reviewed in more detail for loans representing 47.8% of the pool and, in certain cases, revised based on additional information and/or property characteristics. Loss expectations attributed to loans reviewed in detail represent approximately 42.7% of the 2.6%.
Approximately 79.7% of the mortgages mature within the next five years as follows: 10.8% in 2009, 16.5% in 2010, 2.4% in 2011 and 9.2% in 2014, and 40.7% in 2015.
Fitch identified 36 Loans of Concern (18.3%) within the pool, 15 of which (12.5%) are specially serviced. Of the specially serviced loans, eight (9.8% of the pool) are current. One of the Fitch Loans of Concern (7.8%) is within the transaction's top 15 loans.
Fitch's analysis resulted in loss expectations for two of the top 15 loans. However, none of the top 15 loans are assumed to default during the loan term, as the stressed cash flow for each loan exceeds 0.95x DSCR. Fitch expects that 14 of the top 15 loans may default at maturity based on an insufficient accrued equity position as calculated in Fitch's refinance test. However, Fitch's analysis resulted in losses on two of these loans based on their derived values, while the remaining 12 loans resulted in no losses. A loan would pass the refinance test if the stressed cash flow would achieve a 1.25x DSCR as calculated based on a 30 year amortization schedule and an 8% coupon.
The largest contributors to loss are as follows: Water's Edge (2.9%), Harbor Court (1%), and Indian River Office Building (0.4%),
The Water's Edge loan is secured by a 243,433 square foot (sf) single tenant office property located in Playa Vista, CA built in 2002. The property continues to be 100% occupied by Electronic Arts Inc. which develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, cellular handsets and the Internet. Their lease expires in September of 2013. Given the high leverage of the loan at issuance, Fitch expects a default and losses at maturity.
The Harbor Court loan is secured by a 57,673 mixed use property located in Honolulu, HI. As of year-end 2008, the servicer reported DSCR was 1.21x and occupancy remained strong at 100% occupied. Given the high leverage nature of the loan, Fitch expects a default at maturity, and the loan to incur losses.
The Indian River Office Building transferred to the special servicer in July 2009 due to monetary default. The loan is secured by a four building medical office complex totaling 94,706 sf built in 1980. The current borrower purchased the complex in August 2004. Three days later three hurricanes struck Vero Beach and damage to the building was over $6 million. Building sustained severe damage and loss of tenants. Current occupancy is 66% occupied in a market of declining rentals and vacancies of 25%. The borrower has been supporting the property out of pocket and has requested a loan modification. The year-end servicer reported DSCR was 0.75x.
Fitch has downgraded, assigned Loss Severity (LS) ratings, Recovery Ratings (RRs) and Rating Outlooks to the following classes as indicated:
--$68.4 million class B to 'AA/LS4' from 'AA+'; Outlook Stable;
--$25.2 million class C to 'A/LS4' from 'AA'; Outlook Stable;
--$54 million class D to 'A/LS5' from 'A+'; Outlook Stable;
--$28.8 million class E to 'BBB/LS5' from 'A-'; Outlook Stable;
--$46.8 million class F to 'BB/LS4' from 'BBB+'; Outlook Stable;
--$28.8 million class G to 'BB/LS5' from 'BBB'; Outlook Stable.
--$32.4 million class H to 'B-/LS5' from 'BB+'; Outlook Stable;
--$10.8 million class J to 'B-/LS5' from 'BB'; Outlook Negative;
--$14.4 million class K to 'B-/LS5' from 'B+'; Outlook Negative;
--$10.8 million class L to 'B-/LS5' from 'B'; Outlook Negative;
--$7.2 million class M to 'B-/LS5' from 'B-'; Outlook Negative;
--$7.2 million class N to 'B-/LS5' from 'B-'; Outlook Negative;
--$10.8 million class P to 'CCC/RR6' from 'CCC/DR1'.
In addition, Fitch affirms, assigns LS ratings and assigns Rating Outlooks to the following classes:
--$311.1 million class A-1A at 'AAA/LS1'; Outlook Stable;
--$903.8 million class A-2 at 'AAA/LS1'; Outlook Stable;
--$157.5 million class A-3 at 'AAA/LS1'; Outlook Stable;
--$601.5 million class A-4 at 'AAA/LS1'; Outlook Stable;
--$110.7 million class A-SB at 'AAA/LS1'; Outlook Stable;
--$94.3 million class A-J at 'AAA/LS3'; Outlook Stable;
--$100 million class A-JFL at 'AAA/LS3'; Outlook Stable;
--Interest only class X-1 at 'AAA'; Outlook Stable;
--Interest only class X-2 at 'AAA'; Outlook Stable;
The class A-1 has been paid off in full. Fitch does not rate the $15.9 million class NR.
Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 8, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS' is available at 'www.fitchratings.com' under the following headers:
Structured Finance then CMBS then Criteria Reports
Structured Finance then CMBS then Special Reports
Additional information is available at 'www.fitchratings.com'.
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Contacts:
Fitch Ratings, New York
Greg Christoforides, 212-908-0703
Adam
Fox, 212-908-0869
or
Media Relations:
Sandro Scenga,
212-908-0278
Email: sandro.scenga@fitchratings.com
